Barclays and RBS slide as Libor probe intensifies

17.15: Shares in Barclays and Royal Bank of Scotland fell today after the head of the Serious Fraud Office (SFO) said he expected ‘significant developments’ in the inquiries into alleged Libor interest rate rigging.

Barclays (BARC.L) was the biggest faller on the FTSE 100, dropping 5p or 2.1% to 231.5p, with RBS (RBS.L) shedding 4.4p or 1.5% to 270.3p after the newswire reported that prosecutors were poised to arrest former traders and rate setters at both British banks and Swiss rival UBS.

All three banks declined to comment.

David Green, SFO director, told Bloomberg the developments were expected in the ‘near future’ but did not comment on possible arrests. His agency has 40 people working on the investigation into the manipulation of the London interbank bank offered rate for which Barclays was fined £290 million in the summer.

The Libor scandal, along with the rising bill for compensating customers mis-sold payment protection insurance (PPI) and growing anger over the mis-selling of interest rate swaps to businesses, have further damaged banks’ reputations.

The fall in the banks’ shares contributed to another uncertain day for the FTSE 100 which, after a sharp fall earlier in the day, recovered to close 1.6 points up at 5,777. However, the index has fallen 1.5% in a week that has seen the re-election of President Obama focus investors’ minds on the impending ‘fiscal cliff’ caused by simultaneous tax rises and spending cuts.

Trading in Wall Street recovered from a nervous start after the University of Michigan’s consumer sentiment survey beat forecasts. The Dow Jones industrial average traded 26 points or 0.2% higher at 12,832 and the S&P 500 gained six points or 0.6% to 1,385, although over the week it has fallen 2.2%.

President Obama is due to make a statement this evening addressing the fiscal cliff challenge in what is seen as an opening shot in negotiations with Republicans who are opposed to tax increases.

In Europe the mood was downbeat after poor industrial production figures from France showed the country remains mired in recession, while progress over Greece’s latest debt talks was unclear. The Euronext 100 firmed 1.8 points to 652 but the euro fell 0.2% to $1.2716 against the dollar although it strengthened against the pound which slid 0.4% to $1.5910.

Sterling fell to a two-month low against the dollar after the Treasury shocked markets by saying it would use interest payments generated by the Bank of England quantitative easing policy (of creating money to buy government debt) in order to reduce then issuance of short-term debt . This circularity caused economists to worry about the close relationship between the central bank and the Treasury.

Philip Rush, economist at Nomura, said: ‘Now, whenever the BoE does QE, it will be directly and transparently reducing government borrowing not just through putting downward pressure on yields, but through causing all the costs the government faces in issuing its debt to be returned to it promptly each quarter. It is not "Zimbabwean style" monetary financing because any money printed is done so only temporarily, at least in theory, but it looks to us to be a conservative version of it.’

Cost-cutting IAG rises as FTSE stalls

Improving economic data from China isn't enough to prevent the FTSE 100 from heading towards a third day of declines.

09.10: Heavyweight mining and insurance companies weighed heavily on the FTSE 100 in morning trade, preventing the London benchmark index from breaking a two-day losing streak.

Overnight US stocks declined for a second day – following European shares lower – as investors speculated Greece’s bailout will be delayed and amid worries about Washington's ability to find a timely solution to the 'fiscal cliff'. The Dow Jones industrial average dropped 0.94%, while the Standard & Poor's 500 index fell 1.22%. Asian markets subsequently declined.

This morning, investors were greeted by improving data on the Chinese economy, with industrial production, fixed asset investment and retail sales all growing more than expected in the world’s second-largest economy.

The news – which had been flagged up by officials keen for stability amid the once-in-a-decade leadership transition – does, however, decrease the likelihood of market-boosting policy stimulus even as inflation data showed a decline in the consumer prices index to 1.7% year on year.

ENRC(ENRC.L) was the biggest faller among the blue chips, down 2.4% to 287p. Anglo American(AAL.L) fell 1.2% to 1,860p. Among the insurers, Aviva(AV.L) dropped 1.3% to 325p and Old Mutual (OML.L) fell 1.3% to 166p.

Airline group IAG(ICAG.L) managed gains after announcing 4,500 job cuts at Iberia, its Spanish division, which was partly to blame for a 30% fall in pre-tax quarterly profits to €221 million. Shares rose 1.1% to 170p even as chief executive Willie Walsh said loss-making Iberia was in a ‘fight for survival’.

Admiral Group(ADML.L) was the biggest riser on the FTSE 100 though, up 3.5% to 1,055p after analysts at Bank of America Merrill Lynch raised their view on the insurer’s shares to ‘buy’ from ‘underperform’.

Michael Page(MPI.L) was the biggest gainer on the FTSE 250, up 4% to 373p, after analysts at UBS upgraded the recruitment company’s shares to a ‘buy’ from ‘neutral’.

At the other end of the mid-cap index broker Tullett Prebon(TLPR.L) dropped 4% to 451p after blaming challenging market conditions for a 12% decline in revenues over the four months to the end of October.

Rentokil(RTO.L) dropped 3.3% to 85p after the pest control company announced a small 0.2% rise in group sales in the third quarter of the year, but warned of a small loss in its City Link business. Barclays cut its target price on the shares to 96p from 101p, while Seymour Pierce downgraded their recommendation from ‘hold’ to ‘reduce’, complaining ‘this is not the first time that management have failed to deliver on their promises’.

After a whistleblower in the Connaught scandal expressed his outrage at the apology received from the regulator, we look at 10 headline-grabbing moments when the FCA and its predecessor was forced to say ‘sorry’.

Following a scathing FCA report on the asset management industry, Mike Barrett, consulting director at the lang cat, explains how advisers can incorporate the regulator’s latest advice into their work, while preparing for future rule changes.

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